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Central Banks Turn Hawkish. Will Fed Trail Behind?

By Kathy LienForexMay 27, 2021 06:29PM ET
www.investing.com/analysis/central-banks-turn-hawkish-will-fed-trail-behind-200582857
Central Banks Turn Hawkish. Will Fed Trail Behind?
By Kathy Lien   |  May 27, 2021 06:29PM ET
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After weeks of tier one economic reports from all corners of the world, the lack of market-moving data outside of the Reserve Bank of New Zealand’s rate decision meant the possibility of quiet consolidative trade. However, we saw the complete opposite this week, as the central banks of New Zealand and the UK dropped hints of tightening. 
 
Sterling soared today on the back of Bank of England member Gertjan Vlieghe’s comment that rates could rise as soon as the first half of next year if the job market recovers faster than expected. This was followed almost immediately by Prime Minister Boris Johnson’s comment that there is nothing in recent COVID data that will delay the June 21 reopening. Vlieghe’s optimism and the rally in the pound is consistent with the improvements in data and the central bank’s overall forecast for a faster recovery. When it last met in early May, the BoE said it expects the economy to return to pre-pandemic levels by the end of the year. Even though it also slowed asset purchases, sterling sold off at the time because the central bank did not change its guidance on when interest rates will rise. This is one of the first times we’ve heard a policy-maker be so specific about early tightening and as a result, we look for GBP/USD to climb to fresh three-year highs and EUR/GBP to head towards 2020 lows in the coming weeks.
 
This follows the Reserve Bank of New Zealand’s forecast of a rate hike in the second quarter of 2022. This was the first official forecasts from the central bank since the pandemic, and for now is a call that is more aggressive than the Federal Reserve and the European Central Bank. Hence, we expect NZD and GBP to outperform other major currencies in the weeks ahead. 
 
The big question now is: Who will shift their guidance next? All eyes are on the Federal Reserve, with the PCE deflator scheduled for release on Friday. The personal consumption expenditure deflator is one of the Fed’s favorite inflation measures. The PCE index is expected to rise sharply, with economists looking for 2.9% year-over-year increase in core rates. While the Fed has made it clear it sees any increase in inflation as transitory, a larger-than-expected increase could drive USD/JPY higher. However, any gains could be mitigated by personal income and personal spending numbers that are expected to be softer. For today’s reports, jobless claims continued to fall, but unexpected declines were reported in durable goods and pending home sales. The Fed may not be the last to tighten, but for now with more negative than positive disappointments, the U.S. dollar could underperform as traders expect the Fed to lag behind.
 
Higher oil prices helped the Canadian dollar resumed its rise against the greenback, but the euro and the Australian dollar failed to participate in the rally. That could change tomorrow for the single currency as we look for upticks in German import prices and Eurozone confidence numbers. Global inflationary pressures have increased, while euro area reopenings should bolster confidence.  
Central Banks Turn Hawkish. Will Fed Trail Behind?
 

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Central Banks Turn Hawkish. Will Fed Trail Behind?

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Comments (14)
Fayyad Ismael
Fayyad Ismael Jun 02, 2021 9:26AM ET
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We need your view of the markets for this week😫
sajid ali
sajid ali May 28, 2021 10:49AM ET
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are you invester in forex
sajid ali
sajid ali May 28, 2021 10:48AM ET
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are you invester in forex
Fardin Imane
Fardin Imane May 28, 2021 3:08AM ET
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marketslin.case dimo function what doing with my business?
Jokers R Us
Jokers R Us May 28, 2021 2:04AM ET
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Fed will never ease
mahlaku ramabolu
mahlaku ramabolu May 27, 2021 10:12PM ET
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I value your insight
Balkrishna Lamichhane
Balkrishna Lamichhane May 27, 2021 10:10PM ET
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If I come to U.S.A Please get me A good job From Telkot Bhaktapur NEPAL
Balkrishna Lamichhane
Balkrishna Lamichhane May 27, 2021 10:04PM ET
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Good morning
Luqman Firdaus
Luqman Firdaus May 27, 2021 9:59PM ET
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love you kathy lien bussinnes ok
Ayed Alabahi
Ayed Alabahi May 27, 2021 9:11PM ET
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eurusa now sell or buy
John Smit
John Smit May 27, 2021 9:11PM ET
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Sell then buy then repeat. Good luck.
SALIM MUSA MUHAMMAD
SALIM MUSA MUHAMMAD May 27, 2021 8:42PM ET
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hello Mrs Kathy lien how are you doing
Feric Santoso
Feric Santoso May 27, 2021 8:07PM ET
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Will gold falling down?
Reginald Erasto
Reginald Erasto May 27, 2021 8:07PM ET
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wait for Friday's release
جلیل احمد هاشمی
جلیل احمد هاشمی May 27, 2021 7:19PM ET
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Helo
Derrick Smart
Derrick Smart May 27, 2021 7:15PM ET
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Great Analysis
 
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